Wednesday September 17, 9:44 am ET By Madlen Read, AP Business Writer
Wall Street tumbles again after government bails out AIG, Barclays buys Lehman businesses
NEW YORK (AP) -- Stocks skidded again Wednesday, with anxieties about the financial system still running high even after the government bailed out the insurer American International Group Inc. The Dow Jones industrial average dropped about 200 points.
The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the company. Wall Street had feared that the insurer, which has lost billions in the risky business of insuring against bond defaults, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy.
Lehman, after filing for bankruptcy protection on Monday, sold its North American investment banking and trading operations to Barclays, Britain's third-largest bank, on Tuesday for the bargain price of $250 million.
The moves by the Fed and Barclays lift some of the uncertainty surrounding two of the most precarious pillars of the U.S. financial system, but investors' worries are far from erased.
The two independent Wall Street investment banks left standing -- Goldman Sachs Group Inc. and Morgan Stanley -- remain under scrutiny. Morgan Stanley revealed its quarterly earnings early late Tuesday, posting a better-than-expected 7 percent slide in fiscal third-quarter profit and insisting that it is surviving the credit crisis that has ravaged many of its peers.
Over the weekend, Merrill Lynch, the world's largest brokerage, sold itself in a last-ditch effort to avoid failure to Bank of America Corp.
Furthermore, the troubles in the financial sector could exacerbate the problems facing the weak U.S. economy. The Commerce Department reported Wednesday that new home construction fell by 6.2 percent in August to 895,000 units, the slowest building pace since January 1991.
Slumping demand for houses, sinking home prices and mortgage defaults have been the catalysts behind Wall Street's turmoil -- and the risky mortgage-backed assets held by the nation's banks are not apt to regain in value until the housing market turns around.
A day after Wall Street regained some of Monday's nosedive, the Dow fell 200.54, or 1.81 percent, to 10,858.48 in early trading.
Broader stock indicators also tumbled. The Standard & Poor's 500 index fell 21.38, or 1.76 percent, to 1,192.22. The Nasdaq composite index fell 44.21, or 1.76 percent, to 1,192.22.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Wednesday, September 17, 2008
Lehman unloads its banking divisions to Barclays
Wednesday September 17, 8:12 am ET By Joe Bel Bruno and Stephen Bernard, AP Business Writers
Barclays gets Lehman's North American banking and capital markets units for a Wall Street song
NEW YORK (AP) -- Lehman Brothers, which a year ago had a market capitalization of more than $33 billion, is now unloading its once-prized businesses for what passes as pocket change on Wall Street.
Barclays PLC, the third-largest British bank, took advantage of Lehman Brothers Holdings Inc.'s bankruptcy reorganization Tuesday to reach a deal for Lehman's North American investment banking and trading operations for just $250 million.
Barclays also picked up Lehman's New York headquarters and two data centers in New Jersey for $1.5 billion.
It marks a major coup for the U.K. bank, which agreed to buy the assets just days after walking away from a deal to purchase all of Lehman.
The U.S. investment bank filed for bankruptcy protection on Monday after it was unable to find financing or fresh capital to shore up its balance sheet amid a continued downturn in the credit markets.
The deals require approval from the bankruptcy court.
Meanwhile, Lehman executives continue to negotiate a potential sale of its prized investment management division, which includes money manager Neuberger Berman. The division was once valued by as much as $10 billion by Wall Street analysts, but now could fetch much less considering Lehman's bankruptcy proceedings.
A person familiar with the negotiations, who spoke on the condition of anonymity because the talks are ongoing, said Lehman was focusing on trying to sell the business to private-equity firms. The sale is expected to happen in a matter of days, the person said.
Bain Capital and Hellman & Friedman are the two top private-equity shops bidding on the investment management division, the person said, but Kohlberg Kravis Roberts & Co. is still in the running.
Barclays said it will acquire Lehman's North American banking operations, which include fixed income and equities sales, trading and research and investment banking business. The deal throws a lifeline to about 10,000 employees working in the divisions.
Barclays and Lehman reached the agreement hours after Lehman's first bankruptcy hearing in a crowded courtroom at the U.S. bankruptcy court in Manhattan, just steps away from Wall Street's iconic bull statue.
JPMorgan advanced Lehman $87 billion when the market opened Monday, acting in part on a request by the Federal Reserve Bank of New York. The New York Fed later repaid JPMorgan that amount. On Tuesday, JPMorgan advanced another $51 billion.
Shai Waisman, a lawyer for Weil, Gotshal & Manges, LLP representing Lehman Brothers, in his opening statement argued that Lehman's Brothers' downfall was the result of a "chain reaction" of events that were largely out of the investment bank's control.
"Lehman operated in an extremely unfavorable business environment," Waisman said, referring to declining asset values and low levels of liquidity.
Judge James Peck approved a motion that JPMorgan Chase & Co. will remain Lehman's clearing house through the bankruptcy proceedings. The issue arose over the past two days, when JPMorgan made the advances to Lehman to allow it to keep trading and "avoid a disruption of the financial markets," according to court filings.
Also on Tuesday, the House Oversight and Government Reform committee said it would hold a hearing Sept. 25 to examine the "regulatory mistakes and financial excesses" that led to Lehman's bankruptcy filing. It asked Lehman Chief Executive Richard Fuld to testify before the committee.
AP Business Writers Vinnee Tong and Madlen Read contributed to this story.
Barclays gets Lehman's North American banking and capital markets units for a Wall Street song
NEW YORK (AP) -- Lehman Brothers, which a year ago had a market capitalization of more than $33 billion, is now unloading its once-prized businesses for what passes as pocket change on Wall Street.
Barclays PLC, the third-largest British bank, took advantage of Lehman Brothers Holdings Inc.'s bankruptcy reorganization Tuesday to reach a deal for Lehman's North American investment banking and trading operations for just $250 million.
Barclays also picked up Lehman's New York headquarters and two data centers in New Jersey for $1.5 billion.
It marks a major coup for the U.K. bank, which agreed to buy the assets just days after walking away from a deal to purchase all of Lehman.
The U.S. investment bank filed for bankruptcy protection on Monday after it was unable to find financing or fresh capital to shore up its balance sheet amid a continued downturn in the credit markets.
The deals require approval from the bankruptcy court.
Meanwhile, Lehman executives continue to negotiate a potential sale of its prized investment management division, which includes money manager Neuberger Berman. The division was once valued by as much as $10 billion by Wall Street analysts, but now could fetch much less considering Lehman's bankruptcy proceedings.
A person familiar with the negotiations, who spoke on the condition of anonymity because the talks are ongoing, said Lehman was focusing on trying to sell the business to private-equity firms. The sale is expected to happen in a matter of days, the person said.
Bain Capital and Hellman & Friedman are the two top private-equity shops bidding on the investment management division, the person said, but Kohlberg Kravis Roberts & Co. is still in the running.
Barclays said it will acquire Lehman's North American banking operations, which include fixed income and equities sales, trading and research and investment banking business. The deal throws a lifeline to about 10,000 employees working in the divisions.
Barclays and Lehman reached the agreement hours after Lehman's first bankruptcy hearing in a crowded courtroom at the U.S. bankruptcy court in Manhattan, just steps away from Wall Street's iconic bull statue.
JPMorgan advanced Lehman $87 billion when the market opened Monday, acting in part on a request by the Federal Reserve Bank of New York. The New York Fed later repaid JPMorgan that amount. On Tuesday, JPMorgan advanced another $51 billion.
Shai Waisman, a lawyer for Weil, Gotshal & Manges, LLP representing Lehman Brothers, in his opening statement argued that Lehman's Brothers' downfall was the result of a "chain reaction" of events that were largely out of the investment bank's control.
"Lehman operated in an extremely unfavorable business environment," Waisman said, referring to declining asset values and low levels of liquidity.
Judge James Peck approved a motion that JPMorgan Chase & Co. will remain Lehman's clearing house through the bankruptcy proceedings. The issue arose over the past two days, when JPMorgan made the advances to Lehman to allow it to keep trading and "avoid a disruption of the financial markets," according to court filings.
Also on Tuesday, the House Oversight and Government Reform committee said it would hold a hearing Sept. 25 to examine the "regulatory mistakes and financial excesses" that led to Lehman's bankruptcy filing. It asked Lehman Chief Executive Richard Fuld to testify before the committee.
AP Business Writers Vinnee Tong and Madlen Read contributed to this story.
Monday, September 15, 2008
Lehman Brothers files for Chapter 11 protection
Monday September 15, 8:13 am ET
Lehman Brothers files for Chapter 11 bankruptcy protection
NEW YORK (AP) -- Lehman Brothers has filed for bankruptcy protection under the weight of $60 billion in soured real estate holdings.
The company's filing for Chapter 11 protection will allow it to restructure while creditor claims are held at bay. The filing was made Monday in the U.S. Bankruptcy Court in the Southern Disctrict of New York.
Lehman's last hope of surviving outside of court protection faded Sunday after British bank Barclays PLC withdrew its bid to buy the investment bank.
The 158-year-old investment bank had said earlier that none of its broker-dealer subsidiaries or other units would be included in the Chapter 11 filing. It says it is exploring the sale of its broker-dealer operations and is in "advanced discussions" to sell its investment management unit.
Lehman Brothers files for Chapter 11 bankruptcy protection
NEW YORK (AP) -- Lehman Brothers has filed for bankruptcy protection under the weight of $60 billion in soured real estate holdings.
The company's filing for Chapter 11 protection will allow it to restructure while creditor claims are held at bay. The filing was made Monday in the U.S. Bankruptcy Court in the Southern Disctrict of New York.
Lehman's last hope of surviving outside of court protection faded Sunday after British bank Barclays PLC withdrew its bid to buy the investment bank.
The 158-year-old investment bank had said earlier that none of its broker-dealer subsidiaries or other units would be included in the Chapter 11 filing. It says it is exploring the sale of its broker-dealer operations and is in "advanced discussions" to sell its investment management unit.
Stocks tumble amid new Wall Street landscape
Monday September 15, 1:57 pm ET By Tim Paradis, AP Business Writer
Stocks fall sharply following Lehman bankruptcy, Merrill sale; AIG remains worry, falls 44 pct
NEW YORK (AP) -- A stunning reshaping of the Wall Street landscape sent stocks tumbling Monday, but the pullback appeared relatively orderly -- perhaps because investors were unsurprised by the demise of Lehman Brothers Holdings Inc. and relieved by a takeover of Merrill Lynch & Co.
The Dow Jones industrial average fell 300 points, a number that has become familiar over the past year amid the turmoil in the financial sector. Bond prices soared as investors sought the safety of government debt.
Stocks also posted big losses in markets across much of the globe as investors absorbed Lehman's bankruptcy filing and what was essentially a forced sale of Merrill Lynch to Bank of America for $50 billion in stock. While those companies' situations had reached some resolution, the market remained anxious about American International Group Inc., which is seeking emergency funding to shore up its balance sheet. A faltering of the world's largest insurance company likely would have financial implications far beyond that of Lehman, the largest U.S. bankruptcy.
The swift developments are the biggest yet in the 14-month-old credit crises that stems from now toxic subprime mortgage debt.
Investors are worried that trouble at AIG and the bankruptcy filing by Lehman, felled by $60 billion in bad debt and a dearth of investor confidence, will touch off another series of troubles for banks and financial institutions that may be forced to further write down the value of their own debt assets. Wall Street had been hopeful six months ago that the collapse of Bear Stearns would mark the darkest day of the credit crisis.
AIG's troubles a week after its stock dropped 45 percent are worrisome for some investors because of the company's enormous balance sheet and the risks that troubles with that companies finances could spill over to the companies with which it does business. AIG, one of the 30 stocks that make up the Dow industrials, fell $5.31, or 44 percent, to $6.83 Monday as investors worried that it would be the subject of downgrades from credit ratings agencies.
Before the start of trading, there were fears that Monday's decline would even more severe.
Jeffrey Mortimer, chief investment officer at Charles Schwab Investment Management in San Francisco, said stocks' losses aren't steeper because the market expected Lehman would find a buyer or declare bankruptcy.
"This is showing that this was not completely unexpected," he said, of Lehman. He added that the Merrill deal removes one possible source of concern for investors. "This may have taken a player who might have been next out of the target zone."
Still, the market was fractious, and a sharper drop as the session wears on was still possible.
In early afternoon trading, the Dow fell 300.03, or 2.63 percent, to 11,121.96 after falling nearly 350 points seen in the early going.
Broader stock indicators also fell. The Standard & Poor's 500 index declined 33.06, or 2.64 percent, to 1,218.64, and the Nasdaq composite index fell 46.69, or 2.06 percent, to 2,218.64.
Declining issues outnumbered advancers by about 9 to 1 on the New York Stock Exchange, where volume came to a moderate 833.7 million shares.
Light, sweet crude dropped $4.15 to $97.03 on the New York Mercantile Exchange after damage to Gulf of Mexico oil infrastructure from Hurricane Ike was less than investors feared. Worries about a slower economy have also weighed on oil prices in recent weeks. Oil is down sharply from its mid-July highs when it hit a record over $147 a barrel.
Despite the pullback in oil, prices at the gas pump rose above $5 per gallon in some parts of the country Sunday after Ike left some the nation's refining capacity inoperable.
Investors will be watching to see whether the Dow moves below the 11,000 mark, a level it hasn't traded and closed under since mid-July. The S&P 500 last tested the 1,200 level in mid-July.
Bond prices surged as investors fled to the security of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, plunged to 3.52 percent from 3.72 percent late Friday. The dollar was lower against other major currencies, while gold prices rose.
AIG pared some of its losses after New York Gov. David Paterson said in a press conference the company will be allowed to access $20 billion of assets held by its subsidiaries to stay in business. Paterson asked the state's insurance regulators to in essence allow AIG to provide a bridge loan to itself. Investors are worried that the company could need up to $40 billion to aid its balance sheet.
Other financial stocks fell as investors worried about the strength of banks' balance sheets. Washington Mutual Inc. fell 44 cents, or 16 percent, to $2.29, while Wachovia Corp. fell $3.05, or 21 percent, to $11.22.
Investors did have some more solid footing than they might have predicted at the end of last week, when Lehman's troubles and those of AIG weighed on the markets. A global consortium of banks, working alongside government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.
And the deal for Merrill Lynch pays a 70 percent premium to the brokerage's closing price Friday. The stock has been squeezed in recent weeks, leading many Wall Street veterans to point to the company as the next behind Lehman as likely to run into trouble with bearish investors and get hit by intensified selling. The deal to pair the company with Bank of America, a huge bank with a big asset base, removes some of the worries about Merrill would be the next to fall.
Merrill rose $2.63, or 15 percent, to $19.68, while Bank of America fell $6.26, or 19 percent, to $27.48.
Although Monday's losses were milder than analysts' worst fears, many market observers have said for months that a cathartic sell-off is necessary for Wall Street to purge its worries over bad debt and the tight credit conditions that have hobbled the economy. They reason that a scare and subsequent sell-off in the markets could establish conditions for a market bottom to form.
"This is sort of groundbreaking type stuff," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York.
Fullman, who has worked on Wall Street for 29 years, noted that the Dow contains companies, such as retailers like Wal-Mart Stores Inc. that could help cushion some of the selling in the financial sector. Wal-Mart fell 21 cents to $62.20, while Coca-Cola Co. rose 95 cents to $55.46.
"While they might get hit hard they won't get hit as hard," he said.
But even good news like a drop in oil and some resolution to fears about Merrill couldn't prevent widespread selling. Markets in Tokyo and several other Asian money centers were closed for holidays. Britain's FTSE 100 fell 3.92 percent, Germany's DAX index lost 2.74 percent, and France's CAC-40 fell 3.78 percent. The European Central Bank, the Bank of England, and the Swiss central bank stepped in an attempt to calm markets by making more short-term credit available to banks.
The reduced headcount of Wall Street firms Monday left Goldman Sachs Group Inc. and Morgan Stanley as the remaining big, independent firms. The two are slated to report quarterly results Tuesday and Wednesday, respectively.
Goldman Sachs fell $17.11, or 11 percent, to $137.10, while Morgan Stanley fell $4.24, or 11 percent, to $32.99.
The shake-up comes only a week after the government bailed out mortgage lenders Fannie Mae and Freddie Mac and ahead of sizable economic developments this week. The Fed is expected to make a decision on interest rates on Tuesday.
The Russell 2000 index of smaller companies fell 14.98, or 2.08 percent, to 705.28.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Stocks fall sharply following Lehman bankruptcy, Merrill sale; AIG remains worry, falls 44 pct
NEW YORK (AP) -- A stunning reshaping of the Wall Street landscape sent stocks tumbling Monday, but the pullback appeared relatively orderly -- perhaps because investors were unsurprised by the demise of Lehman Brothers Holdings Inc. and relieved by a takeover of Merrill Lynch & Co.
The Dow Jones industrial average fell 300 points, a number that has become familiar over the past year amid the turmoil in the financial sector. Bond prices soared as investors sought the safety of government debt.
Stocks also posted big losses in markets across much of the globe as investors absorbed Lehman's bankruptcy filing and what was essentially a forced sale of Merrill Lynch to Bank of America for $50 billion in stock. While those companies' situations had reached some resolution, the market remained anxious about American International Group Inc., which is seeking emergency funding to shore up its balance sheet. A faltering of the world's largest insurance company likely would have financial implications far beyond that of Lehman, the largest U.S. bankruptcy.
The swift developments are the biggest yet in the 14-month-old credit crises that stems from now toxic subprime mortgage debt.
Investors are worried that trouble at AIG and the bankruptcy filing by Lehman, felled by $60 billion in bad debt and a dearth of investor confidence, will touch off another series of troubles for banks and financial institutions that may be forced to further write down the value of their own debt assets. Wall Street had been hopeful six months ago that the collapse of Bear Stearns would mark the darkest day of the credit crisis.
AIG's troubles a week after its stock dropped 45 percent are worrisome for some investors because of the company's enormous balance sheet and the risks that troubles with that companies finances could spill over to the companies with which it does business. AIG, one of the 30 stocks that make up the Dow industrials, fell $5.31, or 44 percent, to $6.83 Monday as investors worried that it would be the subject of downgrades from credit ratings agencies.
Before the start of trading, there were fears that Monday's decline would even more severe.
Jeffrey Mortimer, chief investment officer at Charles Schwab Investment Management in San Francisco, said stocks' losses aren't steeper because the market expected Lehman would find a buyer or declare bankruptcy.
"This is showing that this was not completely unexpected," he said, of Lehman. He added that the Merrill deal removes one possible source of concern for investors. "This may have taken a player who might have been next out of the target zone."
Still, the market was fractious, and a sharper drop as the session wears on was still possible.
In early afternoon trading, the Dow fell 300.03, or 2.63 percent, to 11,121.96 after falling nearly 350 points seen in the early going.
Broader stock indicators also fell. The Standard & Poor's 500 index declined 33.06, or 2.64 percent, to 1,218.64, and the Nasdaq composite index fell 46.69, or 2.06 percent, to 2,218.64.
Declining issues outnumbered advancers by about 9 to 1 on the New York Stock Exchange, where volume came to a moderate 833.7 million shares.
Light, sweet crude dropped $4.15 to $97.03 on the New York Mercantile Exchange after damage to Gulf of Mexico oil infrastructure from Hurricane Ike was less than investors feared. Worries about a slower economy have also weighed on oil prices in recent weeks. Oil is down sharply from its mid-July highs when it hit a record over $147 a barrel.
Despite the pullback in oil, prices at the gas pump rose above $5 per gallon in some parts of the country Sunday after Ike left some the nation's refining capacity inoperable.
Investors will be watching to see whether the Dow moves below the 11,000 mark, a level it hasn't traded and closed under since mid-July. The S&P 500 last tested the 1,200 level in mid-July.
Bond prices surged as investors fled to the security of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, plunged to 3.52 percent from 3.72 percent late Friday. The dollar was lower against other major currencies, while gold prices rose.
AIG pared some of its losses after New York Gov. David Paterson said in a press conference the company will be allowed to access $20 billion of assets held by its subsidiaries to stay in business. Paterson asked the state's insurance regulators to in essence allow AIG to provide a bridge loan to itself. Investors are worried that the company could need up to $40 billion to aid its balance sheet.
Other financial stocks fell as investors worried about the strength of banks' balance sheets. Washington Mutual Inc. fell 44 cents, or 16 percent, to $2.29, while Wachovia Corp. fell $3.05, or 21 percent, to $11.22.
Investors did have some more solid footing than they might have predicted at the end of last week, when Lehman's troubles and those of AIG weighed on the markets. A global consortium of banks, working alongside government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.
And the deal for Merrill Lynch pays a 70 percent premium to the brokerage's closing price Friday. The stock has been squeezed in recent weeks, leading many Wall Street veterans to point to the company as the next behind Lehman as likely to run into trouble with bearish investors and get hit by intensified selling. The deal to pair the company with Bank of America, a huge bank with a big asset base, removes some of the worries about Merrill would be the next to fall.
Merrill rose $2.63, or 15 percent, to $19.68, while Bank of America fell $6.26, or 19 percent, to $27.48.
Although Monday's losses were milder than analysts' worst fears, many market observers have said for months that a cathartic sell-off is necessary for Wall Street to purge its worries over bad debt and the tight credit conditions that have hobbled the economy. They reason that a scare and subsequent sell-off in the markets could establish conditions for a market bottom to form.
"This is sort of groundbreaking type stuff," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York.
Fullman, who has worked on Wall Street for 29 years, noted that the Dow contains companies, such as retailers like Wal-Mart Stores Inc. that could help cushion some of the selling in the financial sector. Wal-Mart fell 21 cents to $62.20, while Coca-Cola Co. rose 95 cents to $55.46.
"While they might get hit hard they won't get hit as hard," he said.
But even good news like a drop in oil and some resolution to fears about Merrill couldn't prevent widespread selling. Markets in Tokyo and several other Asian money centers were closed for holidays. Britain's FTSE 100 fell 3.92 percent, Germany's DAX index lost 2.74 percent, and France's CAC-40 fell 3.78 percent. The European Central Bank, the Bank of England, and the Swiss central bank stepped in an attempt to calm markets by making more short-term credit available to banks.
The reduced headcount of Wall Street firms Monday left Goldman Sachs Group Inc. and Morgan Stanley as the remaining big, independent firms. The two are slated to report quarterly results Tuesday and Wednesday, respectively.
Goldman Sachs fell $17.11, or 11 percent, to $137.10, while Morgan Stanley fell $4.24, or 11 percent, to $32.99.
The shake-up comes only a week after the government bailed out mortgage lenders Fannie Mae and Freddie Mac and ahead of sizable economic developments this week. The Fed is expected to make a decision on interest rates on Tuesday.
The Russell 2000 index of smaller companies fell 14.98, or 2.08 percent, to 705.28.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Sunday, September 7, 2008
AirAsia takes risks with expansion amid downturn
Sunday September 7, 3:32 am ET By Eileen Ng, Associated Press Writer
Budget carrier AirAsia takes risky gamble with expansion amid downturn
KUALA LUMPUR, Malaysia (AP) -- AirAsia, the region's biggest budget carrier, is making a risky bet.
As soaring fuel prices have forced other airlines to cut back, shed jobs and ground planes, AirAsia is doing the opposite: increasing flights, adding routes and boosting capital investment.
Last month, it even gave away a million free seats (although passengers still had to pay taxes and fuel surcharges). The seven-year-old company is aiming to fill the vacuum as other airlines reduce capacity, betting that more travelers will opt for budget flights amid a global economic downturn.
Analysts say that if it survives the industry slump, AirAsia could come out a winner with increased customer loyalty and a strong route network to catch the growth wave when good times return.
"They are reasonably well positioned for the long run but there's always a trade-off. It's a long term decision, which will cause some short-term pain," said Damien Horth, Asia transport analyst at UBS AG in Hong Kong.
Of course, the strategy could also backfire badly.
Already there are signs of trouble. Last month, AirAsia reported a 95 percent plunge in its net profit for April-June quarter to 9.42 million ringgit ($2.9 million). But the company chalked that up mostly to a 77 million ringgit ($23 million) foreign exchange loss from a weakened Malaysian ringgit, not weakness in its underlying business.
Average load factor -- the percentage of seats taken up in an airplane -- dipped to a still relatively strong 76 percent, from 80 percent in 2007.
Chief Executive Tony Fernandes remains undaunted.
"We are focused and happy with our strategy. We won't sacrifice long-term (growth) for short-term profits," he told The Associated Press.
There are doubts, however, on whether AirAsia can fund its expansion.
It has a cash reserve of about 1 billion ringgit ($303 million) but outstanding debts stand at 5.4 billion ringgit ($1.6 billion), giving it a net debt position of 4.4 billion ringgit ($1.3 billion). Debts are set to grow as it receives new planes.
The carrier has firm orders for 175 Airbus A320 planes, to be delivered gradually up to 2014, as part of fleet replacement and expansion.
Chris Eng, analyst with OSK Securities in Malaysia, said AirAsia's growth prospects may be curbed while its joint-ventures in Thailand and Indonesia are expected to remain in the red.
"It will be challenging but we believe AirAsia can survive," Eng said, citing its efficient regional network and good cost control.
As it expands, AirAsia also faces a challenge in filling up capacity as consumer spending slows and competition increases from flag carrier Malaysia Airlines, which recently offered zero fares on surplus seats, analysts say.
"Everybody is now having to dig deeper into the well of consumer demand and the more they compete, the more fares go down," said Peter Harbison, executive chairman of the Center for Asia-Pacific Aviation in Sydney.
The International Air Transport Association has forecast a $5.2 billion loss this year for the global airline industry. It said crude oil price, currently averaging $113 a barrel, is still 55 percent higher than the 2007 average price while passenger demand growth is slowing even in Asia-Pacific.
At least two dozen airlines worldwide have closed down this year. Many low-cost airlines are also struggling despite escaping the worst of the downturn.
Europe's Ryanair and Southwest Airlines in the U.S.-- two of the most resilient budget carriers -- have cut capacity this year. Ryanair, which reported a second quarter loss, said it may face its first full-year losses in 2008.
UBS's Horth warned AirAsia may also plunge into the red for the first time this year with losses stretching into 2009, as its rapid expansion and aggressive pricing policy bite into revenue.
"Assuming oil prices remain around current levels, its certainly going to be tough. The management is taking a long term approach but investors may get scared," he said. Fuel prices account for half of AirAsia's cost.
AirAsia's stock has plunged by half from a year ago to around 1 ringgit (30 cents), but has risen from an all-time low of 0.765 ringgit (23 cents) in June.
Budget carrier AirAsia takes risky gamble with expansion amid downturn
KUALA LUMPUR, Malaysia (AP) -- AirAsia, the region's biggest budget carrier, is making a risky bet.
As soaring fuel prices have forced other airlines to cut back, shed jobs and ground planes, AirAsia is doing the opposite: increasing flights, adding routes and boosting capital investment.
Last month, it even gave away a million free seats (although passengers still had to pay taxes and fuel surcharges). The seven-year-old company is aiming to fill the vacuum as other airlines reduce capacity, betting that more travelers will opt for budget flights amid a global economic downturn.
Analysts say that if it survives the industry slump, AirAsia could come out a winner with increased customer loyalty and a strong route network to catch the growth wave when good times return.
"They are reasonably well positioned for the long run but there's always a trade-off. It's a long term decision, which will cause some short-term pain," said Damien Horth, Asia transport analyst at UBS AG in Hong Kong.
Of course, the strategy could also backfire badly.
Already there are signs of trouble. Last month, AirAsia reported a 95 percent plunge in its net profit for April-June quarter to 9.42 million ringgit ($2.9 million). But the company chalked that up mostly to a 77 million ringgit ($23 million) foreign exchange loss from a weakened Malaysian ringgit, not weakness in its underlying business.
Average load factor -- the percentage of seats taken up in an airplane -- dipped to a still relatively strong 76 percent, from 80 percent in 2007.
Chief Executive Tony Fernandes remains undaunted.
"We are focused and happy with our strategy. We won't sacrifice long-term (growth) for short-term profits," he told The Associated Press.
There are doubts, however, on whether AirAsia can fund its expansion.
It has a cash reserve of about 1 billion ringgit ($303 million) but outstanding debts stand at 5.4 billion ringgit ($1.6 billion), giving it a net debt position of 4.4 billion ringgit ($1.3 billion). Debts are set to grow as it receives new planes.
The carrier has firm orders for 175 Airbus A320 planes, to be delivered gradually up to 2014, as part of fleet replacement and expansion.
Chris Eng, analyst with OSK Securities in Malaysia, said AirAsia's growth prospects may be curbed while its joint-ventures in Thailand and Indonesia are expected to remain in the red.
"It will be challenging but we believe AirAsia can survive," Eng said, citing its efficient regional network and good cost control.
As it expands, AirAsia also faces a challenge in filling up capacity as consumer spending slows and competition increases from flag carrier Malaysia Airlines, which recently offered zero fares on surplus seats, analysts say.
"Everybody is now having to dig deeper into the well of consumer demand and the more they compete, the more fares go down," said Peter Harbison, executive chairman of the Center for Asia-Pacific Aviation in Sydney.
The International Air Transport Association has forecast a $5.2 billion loss this year for the global airline industry. It said crude oil price, currently averaging $113 a barrel, is still 55 percent higher than the 2007 average price while passenger demand growth is slowing even in Asia-Pacific.
At least two dozen airlines worldwide have closed down this year. Many low-cost airlines are also struggling despite escaping the worst of the downturn.
Europe's Ryanair and Southwest Airlines in the U.S.-- two of the most resilient budget carriers -- have cut capacity this year. Ryanair, which reported a second quarter loss, said it may face its first full-year losses in 2008.
UBS's Horth warned AirAsia may also plunge into the red for the first time this year with losses stretching into 2009, as its rapid expansion and aggressive pricing policy bite into revenue.
"Assuming oil prices remain around current levels, its certainly going to be tough. The management is taking a long term approach but investors may get scared," he said. Fuel prices account for half of AirAsia's cost.
AirAsia's stock has plunged by half from a year ago to around 1 ringgit (30 cents), but has risen from an all-time low of 0.765 ringgit (23 cents) in June.
Saturday, September 6, 2008
Government may soon back troubled mortgage giants
Friday September 5, 11:12 pm ET By Alan Zibel, AP Business Writer
Government may soon take over troubled mortgage finance giants Fannie Mae, Freddie Mac
WASHINGTON (AP) -- The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.
Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.
Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.
The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.
The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.
That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.
Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.
While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.
Many in Washington and on Wall Street hadn't expected Treasury Secretary Henry Paulson to intervene unless the companies had trouble issuing debt to fund their operations.
This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.
Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.
Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages -- almost half the nation's total.
Representatives of Fannie and Freddie declined to comment on the government assistance plan.
Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors."
Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.
Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities.
He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange was president of the Federal Reserve Bank of Boston in the early 1990s.
Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.
A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.
But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.
AP Business Writers Martin Crutsinger and Jeannine Aversa contributed to this report.
Government may soon take over troubled mortgage finance giants Fannie Mae, Freddie Mac
WASHINGTON (AP) -- The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.
Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.
Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.
The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.
The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.
That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.
Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.
While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.
Many in Washington and on Wall Street hadn't expected Treasury Secretary Henry Paulson to intervene unless the companies had trouble issuing debt to fund their operations.
This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.
Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.
Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages -- almost half the nation's total.
Representatives of Fannie and Freddie declined to comment on the government assistance plan.
Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors."
Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.
Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities.
He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange was president of the Federal Reserve Bank of Boston in the early 1990s.
Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.
A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.
But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.
AP Business Writers Martin Crutsinger and Jeannine Aversa contributed to this report.
Friday, September 5, 2008
World markets sink after Wall Street plunge
Friday September 5, 10:43 am ET By Louise Watt, Associated Press Writer
World markets sink after Wall Street plunge as weak US data undercut recovery hopes
LONDON (AP) -- World stock markets fell sharply Friday in the wake of a sell-off on Wall Street amid mounting concerns about a slumping U.S. economy and its impact on global growth.
Wall Street extended its decline Friday after the U.S. government disappointed investors with news that the economy shed jobs for the eighth straight month in August and at a faster-than-expected pace. In morning trading, the Dow Jones industrial average fell 34.33, or 0.31 percent, to 11,153.79.
The Labor Department said payrolls shrank by 84,000 last month, more than the 75,000 economists predicted, and higher than the 51,000 jobs lost in July. The unemployment rate rose to 6.1 percent from 5.7 percent.
Friday's report followed disappointing reports on U.S. retail sales and jobless claims overnight, eroding investors' hopes for a late-year recovery in the world's biggest economy.
By mid-afternoon in Europe, Britain's FTSE-100 was down 1.09 percent to 5,303.90, Germany's DAX lost 1.82 percent to 6,165.19, and France's CAC 40 fell 1.42 percent to 4,242.74.
In Moscow, the ruble-denominated RTS benchmark was down 6.51 percent in late afternoon trading, sinking to the 1,400-point level which has not been seen since June 2006. Moscow-based analysts say they see the market going further down to 1,300 points this year.
Russia's U.S. dollar-denominated MICEX was down 5.54 percent.
Asian markets also fell. In Japan, the benchmark Nikkei 225 index sank 2.75 percent to 12,212.23. Hong Kong's Hang Seng index tumbled 2.24 percent to 19,933.28, dropping below 20,000 for the first time in more than a year.
Markets in India, Australia and Singapore also were down sharply. China's Shanghai index slid 3.3 percent to its lowest close in 21 months.
European markets, adjusting to the falls in Asia and the 3 percent declines seen in the U.S. markets overnight, also traded lower.
"The financials are once again under pressure following comments from Bill Gross at PIMCO -- the world's largest bond fund -- that implied the market was set to experience a "financial tsunami," said Stephen Pope, chief global markets strategist for Cantor Fitzgerald.
"All banks are weaker, although with gloomy euro-zone economic news in the system, and a hawkish policy still persisting from the ECB, Irish and Spanish names are especially hard pressed," he added.
Mobile phone maker Nokia's announcement that it expects its global market share to be hit in the third quarter saw its shares tumble more than 10 percent. The news dragged down the shares of other mobile handset makers, said Pope, adding that the telecommunications sector was down 7.6 percent.
Mark Matthews, chief Asia strategist at Merrill Lynch, said emerging markets in Asia and other regions have been hit hard lately as investors withdrew funds and faith in the global economy withered.
"People want to be confidant that the economy of the world can get better, and right now they don't have that confidence," Matthews said. "They think the global economy is still going to get worse."
News Thursday from major U.S. retailers that shoppers curtailed their spending last month helped send the Dow Jones industrial average down 344.65 points, or 2.99 percent, to 11,188.23. The Nasdaq composite index declined 3.2 percent, or 74.69 points, to 2,259.04.
"It was ugly in the States; many are still taking their leads from the U.S.," said Lorraine Tan, director at Standard & Poor's equity research in Singapore. "And there's just an overall concern with global growth."
Investors bracing for weak U.S. jobs figures fueled selling in Japan, said Masaru Ohnishi, equity strategist at JP Morgan Securities in Tokyo.
But because markets have already fallen so sharply, they are "likely to rebound if results are good," he said.
Toyota Motor Corp. retreated 2.5 percent to 4,750 yen, Nissan Motor Co. tumbled 3.6 percent to 800 yen, and Mazda Motor lost 6.9 percent to 527 yen.
Sony Corp. dived 4.2 percent to 3,880 yen after the consumer electronics maker announced Thursday a worldwide recall of 440,000 Vaio laptop computers due to a wiring flaw that could cause overheating.
In Hong Kong, investors sent Chinese commodity producers spiraling, with Angang Steel losing 7.5 percent to HK$8.56 and Aluminum Corp. of China, or Chalco, down 3.2 percent to HK$6.19.
Property stocks fell sharply after Goldman Sachs issued a pessimistic outlook for the sector. Hong Kong's leading property firm Sun Hung Kai tanked more than 6 percent, while Cheung Kong plunged 5.7 percent.
In Shanghai, selling was heavy across the board, with the key index falling 3.3 percent to 2,202.45. PetroChina, the Shanghai index's biggest traded share, sank 4.2 percent.
In India, the Sensex fell 2.8 percent to 14,483.83.
AP reporters Tomoko A. Hosaka in Tokyo, Jeremiah Marquez in Hong Kong and Joe Bel Bruno and Tim Paradis in New York contributed to this report.
World markets sink after Wall Street plunge as weak US data undercut recovery hopes
LONDON (AP) -- World stock markets fell sharply Friday in the wake of a sell-off on Wall Street amid mounting concerns about a slumping U.S. economy and its impact on global growth.
Wall Street extended its decline Friday after the U.S. government disappointed investors with news that the economy shed jobs for the eighth straight month in August and at a faster-than-expected pace. In morning trading, the Dow Jones industrial average fell 34.33, or 0.31 percent, to 11,153.79.
The Labor Department said payrolls shrank by 84,000 last month, more than the 75,000 economists predicted, and higher than the 51,000 jobs lost in July. The unemployment rate rose to 6.1 percent from 5.7 percent.
Friday's report followed disappointing reports on U.S. retail sales and jobless claims overnight, eroding investors' hopes for a late-year recovery in the world's biggest economy.
By mid-afternoon in Europe, Britain's FTSE-100 was down 1.09 percent to 5,303.90, Germany's DAX lost 1.82 percent to 6,165.19, and France's CAC 40 fell 1.42 percent to 4,242.74.
In Moscow, the ruble-denominated RTS benchmark was down 6.51 percent in late afternoon trading, sinking to the 1,400-point level which has not been seen since June 2006. Moscow-based analysts say they see the market going further down to 1,300 points this year.
Russia's U.S. dollar-denominated MICEX was down 5.54 percent.
Asian markets also fell. In Japan, the benchmark Nikkei 225 index sank 2.75 percent to 12,212.23. Hong Kong's Hang Seng index tumbled 2.24 percent to 19,933.28, dropping below 20,000 for the first time in more than a year.
Markets in India, Australia and Singapore also were down sharply. China's Shanghai index slid 3.3 percent to its lowest close in 21 months.
European markets, adjusting to the falls in Asia and the 3 percent declines seen in the U.S. markets overnight, also traded lower.
"The financials are once again under pressure following comments from Bill Gross at PIMCO -- the world's largest bond fund -- that implied the market was set to experience a "financial tsunami," said Stephen Pope, chief global markets strategist for Cantor Fitzgerald.
"All banks are weaker, although with gloomy euro-zone economic news in the system, and a hawkish policy still persisting from the ECB, Irish and Spanish names are especially hard pressed," he added.
Mobile phone maker Nokia's announcement that it expects its global market share to be hit in the third quarter saw its shares tumble more than 10 percent. The news dragged down the shares of other mobile handset makers, said Pope, adding that the telecommunications sector was down 7.6 percent.
Mark Matthews, chief Asia strategist at Merrill Lynch, said emerging markets in Asia and other regions have been hit hard lately as investors withdrew funds and faith in the global economy withered.
"People want to be confidant that the economy of the world can get better, and right now they don't have that confidence," Matthews said. "They think the global economy is still going to get worse."
News Thursday from major U.S. retailers that shoppers curtailed their spending last month helped send the Dow Jones industrial average down 344.65 points, or 2.99 percent, to 11,188.23. The Nasdaq composite index declined 3.2 percent, or 74.69 points, to 2,259.04.
"It was ugly in the States; many are still taking their leads from the U.S.," said Lorraine Tan, director at Standard & Poor's equity research in Singapore. "And there's just an overall concern with global growth."
Investors bracing for weak U.S. jobs figures fueled selling in Japan, said Masaru Ohnishi, equity strategist at JP Morgan Securities in Tokyo.
But because markets have already fallen so sharply, they are "likely to rebound if results are good," he said.
Toyota Motor Corp. retreated 2.5 percent to 4,750 yen, Nissan Motor Co. tumbled 3.6 percent to 800 yen, and Mazda Motor lost 6.9 percent to 527 yen.
Sony Corp. dived 4.2 percent to 3,880 yen after the consumer electronics maker announced Thursday a worldwide recall of 440,000 Vaio laptop computers due to a wiring flaw that could cause overheating.
In Hong Kong, investors sent Chinese commodity producers spiraling, with Angang Steel losing 7.5 percent to HK$8.56 and Aluminum Corp. of China, or Chalco, down 3.2 percent to HK$6.19.
Property stocks fell sharply after Goldman Sachs issued a pessimistic outlook for the sector. Hong Kong's leading property firm Sun Hung Kai tanked more than 6 percent, while Cheung Kong plunged 5.7 percent.
In Shanghai, selling was heavy across the board, with the key index falling 3.3 percent to 2,202.45. PetroChina, the Shanghai index's biggest traded share, sank 4.2 percent.
In India, the Sensex fell 2.8 percent to 14,483.83.
AP reporters Tomoko A. Hosaka in Tokyo, Jeremiah Marquez in Hong Kong and Joe Bel Bruno and Tim Paradis in New York contributed to this report.
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